SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 34-027228
BANKATLANTIC BANCORP, INC.
--------------------------
(Exact name of registrant as specified in its Charter)
Florida 65-0507804
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 East Sunrise Boulevard
Ft. Lauderdale, Florida 33304
--------------------------- -----
(Address of principal executive (Zip Code)
offices)
(954) 760-5000
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
preferred and common stock as of the latest practicable date.
Outstanding at
Title of Each Class July 21, 1999
------------------- --------------
Class A Common Stock, par value $0.01 per share 26,069,772
Class B Common Stock, par value $0.01 per share 10,377,190
TABLE OF CONTENTS
FINANCIAL INFORMATION ......................................... Page Reference
Financial Statements ................................................ 1-16
Consolidated Statements of Financial Condition - June 30, 1999
and 1998 and December 31, 1998 - Unaudited ..................... 1
Consolidated Statements of Operations - For the Three and Six
Months Ended June 30, 1999 and 1998 - Unaudited ................ 2-3
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the Six Months Ended June 30, 1999 and 1998 -
Unaudited ...................................................... 4-5
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 1999 and 1998 - Unaudited ............................. 6-8
Notes to Consolidated Financial Statements - Unaudited ............ 9-16
Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................... 17-33
OTHER INFORMATION
Changes in Securities and Uses of Proceeds ....................... 34
Submission of Matters to Vote of Security Holders ................ 34
Exhibits and Reports on Form 8K .................................. 34
Signatures ....................................................... 35
[THIS PAGE INTENTIONALLY LEFT BLANK]
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
June 30, December 31, June 30,
(In thousands, except share data) 1999 1998 1998
- --------------------------------- --------- --------- ---------
ASSETS
Cash and due from depository institutions ............. $ 103,300 $ 100,823 $ 87,280
Federal Funds sold .................................... 474 0 0
Loans receivable, net ................................. 2,404,380 2,466,488 2,501,965
Loans held for sale ................................... 278,092 168,881 211,828
Tax certificates, net, held to maturity, at cost
which approximates market value ...................... 93,315 49,896 64,559
Securities available for sale, at market value ........ 1,005,265 599,435 513,550
Trading securities, at market value ................... 20,042 30,005 34,460
Accrued interest receivable ........................... 30,141 27,771 27,533
Real estate held for development and sale and joint
ventures ............................................ 68,706 67,845 42,280
Real estate owned, net ................................ 5,399 5,503 5,775
Office properties and equipment, net .................. 56,364 58,090 55,665
Federal Home Loan Bank stock, at cost which
approximates market value ........................... 45,777 52,230 54,704
Mortgage servicing rights, net ........................ 1,132 44,315 48,146
Deferred tax asset, net ............................... 22,581 20,148 6,811
Cost over fair value of net assets acquired, net ...... 55,669 55,493 57,765
Other assets .......................................... 58,570 42,052 44,250
--------- --------- ---------
Total assets .......................................... $4,249,207 $3,788,975 $3,756,571
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits .............................................. $2,230,301 $1,925,772 $1,812,631
Advances from FHLB .................................... 915,525 1,044,572 1,059,061
Federal Funds purchased ............................... 13,800 18,500 13,600
Securities sold under agreements to repurchase ........ 467,360 162,093 202,489
Subordinated debentures, notes and bonds payable ...... 183,304 177,114 181,300
Guaranteed preferred beneficial interests in the
Company's Junior Subordinated Debentures ............ 74,750 74,750 74,750
Advances by borrowers for taxes and insurance ......... 47,692 62,346 81,472
Other liabilities ..................................... 79,887 83,388 76,017
--------- --------- ---------
Total liabilities ..................................... 4,012,619 3,548,535 3,501,320
--------- --------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized:
none issued and outstanding ........................ 0 0 0
Class A Common Stock, $0.01 par value, authorized
80,000,000 shares; issued and outstanding,
26,068,691, 26,799,368 and 26,300,906 shares ....... 260 268 263
Class B Common Stock, $0.01 par value, authorized
45,000,000 shares; issued and outstanding,
10,376,231, 10,356,431 and 10,375,215 shares ...... 104 104 104
Additional paid-in capital ........................... 141,243 147,686 145,224
Unearned compensation - restricted stock grants ...... (6,510) (7,062) (8,071)
Retained earnings .................................... 111,477 95,818 117,472
---------- ---------- ----------
Total stockholders' equity before accumulated other
comprehensive income ............................... 246,574 236,814 254,992
Accumulated other comprehensive income (loss) - net
unrealized appreciation (depreciation) on
securities available for sale - net of
deferred income taxes.............................. (9,986) 3,626 259
---------- ---------- ----------
Total stockholders' equity ........................... 236,588 240,440 255,251
---------- ---------- ----------
Total liabilities and stockholders' equity ........... $4,249,207 $3,788,975 $3,756,571
========= ========= =========
See Notes to Consolidated Financial Statements - Unaudited
-1-
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
For the Three Months For the Six Months
(In thousands, except share data) Ended June 30, Ended June 30,
- --------------------------------- -------------------- --------------------
Interest income: 1999 1998 1999 1998
- ---------------- ------ ------ ------- -------
Interest and fees on loans and leases ........... $55,369 $55,207 $108,933 $102,527
Interest on banker's acceptances ................ 200 383 389 871
Interest and dividends on securities available
for sale ...................................... 14,618 7,385 24,671 17,372
Interest and dividends on investment securities
held to maturity and trading securities ....... 3,344 2,231 5,950 4,455
------ ------ ------- -------
Total interest income ........................... 73,531 65,206 139,943 125,225
------ ------ ------- -------
Interest expense:
Interest on deposits ............................ 20,529 16,606 37,120 32,973
Interest on advances from FHLB .................. 13,337 13,760 26,834 24,472
Interest on securities sold under agreements
to repurchase and federal funds purchased ..... 4,353 3,496 8,397 6,814
Interest on subordinated debentures, guaranteed
preferred interest in the Company's Junior
Subordinated Debentures and notes and bonds
payable ....................................... 4,912 4,850 9,699 9,789
Capitalized interest on investments in and
advances to real estate joint ventures ........ (157) (218) (332) (218)
------ ------ ------- -------
Total interest expense .......................... 42,974 38,494 81,718 73,830
------ ------ ------- -------
Net interest income ............................. 30,557 26,712 58,225 51,395
Provision for loan losses ....................... 5,669 3,371 10,833 6,778
------ ------ ------- -------
Net interest income after provision for loan
losses ........................................ 24,888 23,341 47,392 44,617
------ ------ ------- -------
Non-interest income:
Loan late fees and other loan income ............ 1,359 1,211 2,489 2,110
Gains on sales of loans held for sale ........... 234 1,084 867 2,831
Gains (losses) on sales of property and equipment 1,459 (1) 1,459 (3)
Gains on sales of securities available for sale . 839 473 1,418 2,193
Trading securities gains (losses) ............... 15 532 (54) 703
Gains on sales of real estate held for sale ..... 1,720 5,159 5,387 5,259
Equity in earnings (losses) of unconsolidated
real estate joint ventures .................... (418) 0 1,310 0
Principal transactions - RBCO ................... 1,704 0 4,704 0
Investment banking - RBCO ....................... 1,223 0 4,340 0
Commissions - RBCO .............................. 3,331 0 6,007 0
Transaction fees ................................ 3,428 3,040 7,019 5,640
ATM fees ........................................ 2,504 1,590 4,703 2,887
Other ........................................... 1,280 1,224 2,498 2,047
------ ------ ------- -------
Total non-interest income ....................... 18,678 14,312 42,147 23,667
------ ------ ------- -------
Non-interest expense:
Employee compensation/benefits excluding
RBCO and real estate operations ............... 9,034 11,197 18,675 22,024
Employee compensation/benefits for RBCO ......... 6,481 0 12,931 0
Employee compensation/benefits for real
estate operations ............................. 236 198 388 363
Occupancy and equipment ......................... 6,001 5,164 11,675 10,011
Federal insurance premium ....................... 267 258 540 520
Advertising and promotion ....................... 937 1,868 1,693 2,502
Foreclosed asset activity, net .................. (1,355) 125 (1,265) (46)
Amortization of cost over fair value of
net assets acquired ........................... 986 701 1,969 1,360
Other excluding RBCO and real estate
operations .................................... 3,907 5,376 9,389 10,252
Other for RBCO .................................. 2,006 0 3,982 0
Other for real estate operations ................ 1,164 999 1,982 1,879
------ ------ ------- -------
Total non-interest expense ...................... 29,664 25,886 61,959 48,865
------ ------ ------- -------
Income before income taxes and discontinued
operations .................................... 13,902 11,767 27,580 19,419
Provision for income taxes ...................... 5,273 4,748 10,780 7,553
------ ------ ------- -------
Income from continuing operations ............... 8,629 7,019 16,800 11,866
Income from discontinued operations, net of
taxes ......................................... 801 (628) 801 (219)
------ ------ ------- -------
Net Income ...................................... $ 9,430 $ 6,391 $ 17,601 $ 11,647
====== ======= ======= =======
See Notes to Consolidated Financial Statements - Unaudited (Continued)
-2-
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- --------- ----------
Class A common shares
Basic earnings per share from
continuing operations ......... $ 0.25 $ 0.22 $ 0.49 $ 0.37
Basic earnings per share from
discontinued operations ....... 0.02 (0.02) 0.02 0.00
---------- ---------- --------- ----------
Basic earnings per share ........ $ 0.27 $ 0.20 $ 0.51 $ 0.37
========== ========== ========== ==========
Diluted earnings per share from
continuing operations ......... $ 0.20 $ 0.17 $ 0.38 $ 0.30
Diluted earnings per share from
discontinued operations ....... 0.01 (0.01) 0.02 (0.01)
---------- ---------- --------- ----------
Diluted earnings per share ..... $ 0.21 $ 0.16 $ 0.40 $ 0.29
========== ========== ========== ==========
Basic weighted average number
of common shares outstanding .. 25,070,081 22,724,683 25,205,483 22,269,820
========== ========== ========== ==========
Diluted weighted average number
of common and common equivalent
shares outstanding ............ 40,892,440 39,320,600 41,048,616 39,039,828
========== ========== ========== ==========
Class B common shares
Basic earnings per share from
continuing operations ......... $ 0.23 $ 0.20 $ 0.44 $ 0.33
Basic earnings per share from
discontinued operations ....... 0.02 (0.02) 0.02 0.00
---------- ---------- --------- ----------
Basic earnings per share ........ $ 0.25 $ 0.18 $ 0.46 $ 0.33
========== ========== ========== ==========
Diluted earnings per share from
continuing operations ......... $ 0.19 $ 0.17 $ 0.36 $ 0.28
Diluted earnings per share from
discontinued operations ....... 0.01 (0.01) 0.02 0.00
---------- ---------- --------- ----------
Diluted earnings per share ...... $ 0.20 $ 0.16 $ 0.38 $ 0.28
========== ========== ========== ==========
Basic weighted average number of
common shares outstanding ..... 10,363,216 10,425,815 10,361,476 10,596,437
========== ========== ========== ==========
Diluted weighted average number
of common and common equivalent
shares outstanding ............ 10,981,844 11,384,648 10,990,427 11,630,834
========== ========== ========== ==========
See Notes to Consolidated Financial Statements - Unaudited
-3-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net
Unearned Unrealized
Compen- Appreci-
Addi- sation ation on
Compre- tional Restricted Securities
hensive Common Paid-in Retained Stock Available
(In thousands) Income Stock Capital Earnings Grants For Sale Total
------- ------ ------- -------- ---------- ---------- -------
BALANCE, DECEMBER 31, 1997 ................. $ 322 $ 98,475 $ 107,650 $ 0 $ 724 $207,171
Net income ................................ $ 11,647 0 0 11,647 0 0 11,647
-------
Other comprehensive income (loss),
net of tax:
Unrealized gains on securities
available for sale ..................... 225
Reclassification adjustment for gains
and (losses) included in net income .... (690)
Other comprehensive loss .................. (465)
-------
Comprehensive income ....................... $ 11,182
========
Dividends on Class A common stock .......... 0 0 (1,318) 0 0 (1,318)
Dividends on Class B common stock .......... 0 0 (507) 0 0 (507)
Exercise of Class A common stock options ... 0 156 0 0 0 156
Exercise of Class B common stock options ... 4 1,322 0 0 0 1,326
Tax effect relating to the exercise of stock
options ................................. 0 676 0 0 0 676
Purchase and retirement of Class B
common stock ............................ (7) (10,640) 0 0 0 (10,647)
Issuance of Class A common stock for
acquisitions ............................ 43 42,391 0 0 0 42,434
Issuance of Class A common stock options
upon acquisition of RBCO ................ 0 1,582 0 0 0 1,582
Issuance of Class A common stock upon
conversion of subordinated debentures, net 5 3,191 0 0 0 3,196
Unearned compensation retention pool ...... 0 8,071 0 (8,071) 0 0
Net change in unrealized depreciation on
securities available for sale-net of
deferred income taxes ..................... 0 0 0 0 (465) (465)
------ ------- -------- --------- --------- -------
BALANCE, JUNE 30, 1998 ..................... $ 367 $145,224 $ 117,472 $ (8,071) $ 259 $255,251
====== ======= ======== ========= ========= =======
See Notes to Consolidated Financial Statements - Unaudited (Continued)
-4-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (Continued)
Net
Unrealized
Unearned Appreciation
Compen- (Depreciation)
Addi- sation on
Compre- tional Restricted Securities
hensive Common Paid-in Retained Stock Available
(In thousands) Income Stock Capital Earnings Grants For Sale Total
------- ------ ------- -------- ---------- ---------- -------
BALANCE, DECEMBER 31, 1998 .............. $ 372 $147,686 $ 95,818 $ (7,062) $ 3,626 $240,440
Net income ............................ $ 17,601 0 0 17,601 0 0 17,601
-------
Other comprehensive income (loss),
net of tax:
Unrealized losses on securities
available for sale ................. (14,323)
Reclassification adjustment for gains
and (losses) included in net income 711
-------
Other comprehensive loss .............. (13,612)
-------
Comprehensive income .................... $ 3,989
=======
Dividends on Class A common stock ....... 0 0 (1,424) 0 0 (1,424)
Dividends on Class B common stock ....... 0 0 (518) 0 0 (518)
Fair value of stock options granted to
non-employees .......................... 0 69 0 0 0 69
Exercise of Class A common stock options 0 206 0 0 0 206
Exercise of Class B common stock options 0 77 0 0 0 77
Tax effect relating to the exercise of
stock options ......................... 0 45 0 0 0 45
Issuance of restricted Class A common
stock for acquisitions ................ 2 1,082 0 0 0 1,084
Purchase and retirement of Class A
common stock .......................... (10) (8,384) 0 0 0 (8,394)
Forfeited Class A restricted common stock 0 (89) 0 89 0 0
Unearned compensation - restricted stock
grants ................................ 0 551 0 (551) 0 0
Amortization of unearned compensation ...
restricted stock grants ............... 0 0 0 1,014 0 1,014
Net change in unrealized depreciation on
securities available for sale-net of
deferred income taxes ................. 0 0 0 0 (13,612) (13,612)
------- ------- -------- ---------- --------- -------
BALANCE, JUNE 30, 1999 .................. $ 364 $141,243 $ 111,477 $ (6,510) $ (9,986) $236,588
====== ======= ======== ========== ========= =======
See Notes to Consolidated Financial Statements - Unaudited
-5-
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
For the Six Months
(In thousands, except share data) Ended June 30,
---------------------
Operating activities: 1999 1998
-------- -------
Income from continuing operations .............. $ 16,800 $ 11,866
Income (loss) from discontinued operations ..... 801 (219)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses ...................... 10,833 6,778
Provision for losses on real estate owned ...... 131 475
Depreciation, amortization and accretion, net .. 13,989 15,398
Gains on sales of mortgage servicing rights .... 0 (2,400)
Decrease (increase) in deferred tax asset, net . 6,163 (2,858)
Trading account (gains) losses ................. 54 (703)
Purchases of trading securities ................ (30) (1,621)
Proceeds from sales of trading securities ...... (54) 1,753
Decrease in trading securities owned at market
- RBCO ........................................ 9,993 0
Gains on sales of real estate owned ............ (1,617) (915)
Gains on sales of real estate held for
development and sale .......................... (5,387) (5,259)
Gains on sales of securities available for sale (1,418) (2,193)
Gains on sales of property and equipment ....... (1,459) (3)
Proceeds from sales of loans held for sale ..... 87,633 144,741
Fundings of loans held for sale ................ (30,337) (75,208)
Loans purchased, classified as held for sale ... (161,448) 0
Gains on sales of loans held for sale .......... (867) (2,831)
Provision for (recovery from) tax certificate
losses ........................................ 193 (59)
Increase in accrued interest receivable ........ (2,370) (4,909)
Decrease in other assets ....................... 9,152 1,514
Equity in earnings of unconsolidated real
estate joint ventures ......................... (1,310) 0
Increase (decrease) in other liabilities ....... (2,941) 19,838
-------- -------
Net cash provided (used) by operating activities $ (53,496) $103,185
======== =======
See Notes to Consolidated Financial Statements - Unaudited (Continued)
-6-
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (Continued)
For the Six Months
(In thousands, except share data) Ended June 30,
- --------------------------------- ----------------------
1999 1998
Investing activities: ------- ----------
Proceeds from redemption and maturities of
tax certificates ............................... 24,470 29,277
Purchase of tax certificates ..................... (68,082) (38,564)
Proceeds from sales of securities available
for sale ........................................ 139,899 390,283
Principal collected on securities available
for sale ........................................ 112,320 69,416
Purchases of securities available for sale ....... (680,173) (365,390)
Proceeds from sales of FHLB stock ................ 12,678 0
FHLB stock acquired .............................. (6,225) (19,817)
Principal reduction on loans ..................... 775,188 676,159
Loan fundings for portfolio ...................... (630,712) (519,690)
Loans purchased for portfolio .................... (58,552) (1,022,314)
Proceeds from maturities of banker's acceptances . 7,838 210,459
Purchases of banker's acceptances ................ (15,370) (94,445)
Proceeds from sales of banker's acceptances ...... 0 41,877
Additions to dealer reserve ...................... 0 (4,682)
Proceeds from sales of real estate owned ......... 8,078 5,272
REO acquired in connection with bulk
residential loan purchases ..................... (2,678) 0
Mortgage servicing rights acquired ............... (897) (36,641)
Proceeds from sales of mortgage servicing
rights ......................................... 12,377 16,145
Cost of equipment acquired for lease ............. (15,547) (9,473)
Additions to office property and equipment ....... (2,723) (4,546)
Proceeds from sales of property and
equipment ...................................... 2,416 3
Investment in and advances to joint
ventures, net .................................. (14,373) (20,551)
Proceeds from sales of real estate held
for development and sale ....................... 7,133 9,536
Additional investment in real estate
held for development and sale .................. (1,025) (4,443)
Acquisition, net of cash acquired ................ (1,221) 433
-------- ----------
Net cash used in investing activities ............ (395,181) (691,696)
-------- ----------
Financing activities:
Net increase in deposits ........................ 278,302 21,393
Interest credited to deposits .................... 26,227 27,505
Repayments of FHLB advances ...................... (458,047) (380,646)
Proceeds from FHLB advances ...................... 329,000 742,000
Net increase in securities sold under
agreements to repurchase ....................... 305,267 143,773
Net increase (decrease) in federal
funds purchased ................................ (4,700) 11,100
Repayment of notes payable ....................... (1,571) (6,522)
Increase in notes payable ........................ 1,812 3,162
Issuance of common stock relating to
exercise of employee stock options ............. 283 1,482
Issuance of common stock options to
non-employees ................................... 69 0
Payments to acquire and retire common
stock .......................................... (8,394) (10,647)
Receipts (repayments) of advances by
borrowers for taxes and insurance .............. (14,654) 42,075
Common stock dividends paid ...................... (1,966) (1,671)
-------- ----------
Net cash provided by financing activities ....... 451,628 593,004
-------- ----------
Increase in cash and cash equivalents ............ 2,951 4,493
Cash and cash equivalents at beginning
of period ...................................... 100,823 82,787
-------- ----------
Cash and cash equivalents at end of period ....... $ 103,774 $ 87,280
======== ==========
See Notes to Consolidated Financial Statements - Unaudited (Continued)
-7-
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(CONTINUED)
For the Six Months
Ended June 30,
-------------------
1999 1998
------- -------
Supplementary disclosure and non-cash investing
and financing activities:
Interest paid on borrowings and deposits ...... $ 77,479 $ 69,863
Income taxes paid ............................. 5,000 5,416
Loans transferred to real estate owned ........ 4,518 3,079
Purchased residential loans held for investment
transferred to held for sale ................ 0 108,465
Issuance of Class A common stock upon
acquisitions ................................ 1,084 42,343
Issuance of Class A common stock upon
conversion of subordinated debentures ....... 0 3,196
Decrease in deferred offering costs upon
conversion of subordinated debentures ....... 0 117
Decrease in subordinated debentures upon
conversion to Class A common stock .......... 0 (3,313)
Loan charge-offs .............................. 12,669 7,072
Tax certificate recoveries, net ............... 377 262
Change in proceeds receivable from sales of
mortgage servicing rights ................... 20,991 5,942
Class A common stock dividends; not paid
until July .................................. 713 719
Class B common stock dividends; not paid
until July .................................. 259 252
Increase in equity for the tax effect related
to the exercise of employee stock options ... 45 676
Change in net unrealized depreciation
on securities available for sale ............ (22,208) (756)
Change in deferred taxes on net unrealized
depreciation on securities available
for sale .................................... (8,596) (291)
Change in stockholders' equity from net
unrealized depreciation on securities
available for sale, less related
deferred income taxes ....................... (13,612) (465)
Loans to joint ventures transferred to
loans receivable ............................ 20,758 0
Increase in real estate held for development
and sale resulting from roadway improvement
development bond ............................ 5,949 0
Increase in real estate held for development
and sale resulting from St. Lucie West
Holding Company ("SLWHC") purchase
accounting adjustments ...................... 0 1,502
Decrease in other assets resulting from
SLWHC purchase accounting adjustments ....... 0 (1,502)
======= =======
See Notes to Consolidated Financial Statements - Unaudited
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. Presentation of Interim Financial Statements
BankAtlantic Bancorp, Inc. (the "Company") is a unitary savings bank
holding company. The Company's principal assets include the capital stock of
BankAtlantic, a Federal Savings Bank ("BankAtlantic") and its subsidiaries and
Ryan Beck & Co., Inc. ("RBCO"), an investment banking firm and its subsidiaries.
Under applicable law, the Company generally has broad authority with few
restrictions to engage in various types of business activities. The Company's
primary activities have related to the operations of BankAtlantic, RBCO and
their subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
In management's opinion, the accompanying consolidated financial statements
contain such adjustments necessary to present fairly the Company's consolidated
financial condition at June 30, 1999 and 1998, the consolidated results of
operations for the three and six months ended June 30, 1999 and 1998, the
consolidated stockholders' equity and comprehensive income for the six months
ended June 30, 1999 and 1998 and the consolidated cash flows for the six months
ended June 30, 1999 and 1998. Such adjustments consisted only of normal
recurring items. The consolidated financial statements and related notes are
presented as permitted by Form 10Q and should be read in conjunction with the
notes to consolidated financial statements appearing in the Company's Annual
Report on Form 10K for the year ended December 31, 1998 and the March 31, 1999
Form 10Q.
2. Common stock dividend
On July 21, 1999, the Company's Board of Directors approved a 15% common
stock dividend, payable in Class A common stock to both Class A and Class B
common shareholders of record at the close of business on August 16, 1999. The
distribution date of this common stock dividend is August 26, 1999. Except as
noted immediately below, amounts in this Form 10Q have not been restated to
reflect the 15% common stock dividend.
The following tables provide information which reflects the retroactive
effect the stock dividend will have on reported earnings per share when such
dividend is paid:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- -----------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
Class A common shares
Basic earnings per share from
continuing operations ......... $ 0.22 $ 0.19 $ 0.42 $ 0.32
Basic earnings per share from
discontinued operations ....... 0.02 (0.02) 0.02 0.00
---------- ---------- ---------- ----------
Basic earnings per share ........ $ 0.24 $ 0.17 $ 0.44 $ 0.32
========== ========== ========== ==========
Diluted earnings per share from
continuing operations ......... $ 0.17 $ 0.15 $ 0.33 $ 0.26
Diluted earnings per share from
discontinued operations ....... 0.01 (0.01) 0.02 (0.01)
---------- ---------- ---------- ----------
Diluted earnings per share ...... $ 0.18 $ 0.14 $ 0.35 $ 0.25
========== ========== ========== ==========
Basic weighted average number
of common shares outstanding .. 30,385,075 27,697,257 30,540,527 27,199,759
========== ========== ========== ==========
Diluted weighted average number
of common and common equivalent
shares outstanding ............ 48,580,788 46,782,562 48,760,130 46,485,268
========== ========== ========== ==========
Class A common shares outstanding 31,535,429 31,802,324 31,535,429 31,802,324
========== ========== ========== ==========
-9-
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1999 1998 1999 1998
--------- ---------- ---------- ----------
Class B common shares
Basic earnings per share from
continuing operations ......... $ 0.17 $ 0.17 $ 0.39 $ 0.30
Basic earnings per share from
discontinued operations ....... 0.01 (0.01) 0.02 (0.01)
--------- ---------- ---------- ----------
Basic earnings per share ........ $ 0.18 $ 0.16 $ 0.41 $ 0.29
========== ========== ========== ==========
Diluted earnings per share from
continuing operations ......... $ 0.17$ $ 0.14 $ 0.32 $ 0.25
Diluted earnings per share from
discontinued operations ....... 0.01 (0.01) 0.01 0.00
--------- ---------- ---------- ----------
Diluted earnings per share ...... $ 0.18$ $ 0.13 $ 0.33 $ 0.25
========== ========== ========== ==========
Basic weighted average number
of common shares outstanding .. 10,363,216 10,425,815 10,361,476 10,596,437
========== ========== ========== ==========
Diluted weighted average number
of common and common equivalent
shares outstanding ............ 11,074,638 11,528,473 11,084,770 11,785,994
========== ========== ========== ==========
Class B common shares outstanding 10,376,231 10,375,215 10,376,231 10,375,215
========== ========== ========== ==========
3. Equity Capital
On July 14, 1999, the Company's Board of Directors approved the repurchase
on the open market of up to 3.5 million shares of the Company's common stock.
The Board authorized the repurchase of common stock on a "time-to-time" basis,
depending upon market conditions and subject to compliance with applicable
securities laws.
During the six months ended June 30, 1999, 35,612 and 19,800 of Class A and
Class B incentive and nonqualifying stock options, respectively, were exercised
resulting in a $328,000 increase in stockholders' equity. The tax effect
included in the preceding amount was $45,000. During the six months ended June
30, 1998, 10,989 and 429,799 of Class A and Class B stock options, respectively,
were exercised resulting in a $2.2 million increase in stockholders' equity. The
tax effect included in the preceding amount was $676,000.
On April 6, 1999, the Board of Directors granted, pursuant to the
BankAtlantic Bancorp 1996 stock option plan, incentive stock options and
nonqualifying stock options to purchase 361,458 shares and 145,792 shares,
respectively, of Class A common stock with an exercise price of $7.125 to all
officers of BankAtlantic. The options vest in five years and expire ten years
after the grant date. Additionally, on April 6, 1999, the Board of Directors
granted nonqualifying stock options to purchase 10,000 shares of Class A common
stock to employees of the Abdo Companies and nonqualifying stock options to
purchase 20,000 shares of Class A common stock to outside Directors. The options
vested on the grant date and expire ten years from the date of grant. Included
in other expense during the three and six months ended June 30, 1999 was $69,000
of consulting expense representing the fair value of the stock options granted
to the Abdo Companies.
On April 6, 1999, the Board of Directors granted, pursuant to the
BankAtlantic Bancorp 1999 nonqualifying stock option plan, nonqualifying stock
options to purchase 26,000 shares of Class A common stock with an exercise price
of $7.125 to selected employees of BankAtlantic. The options vest in five years
and expire ten years after the grant date.
On April 6, 1999, the Board of Directors granted, pursuant to the
BankAtlantic Bancorp 1998 stock option plan, incentive stock options and
nonqualifying stock options to purchase 190,035 shares and 15,965 shares of
Class A common stock with an exercise price of $7.125 to certain employees of
RBCO. The options vest in five years and expire ten years after the grant date.
On June 28, 1999, RBCO acquired the assets of Southeast Research Partners,
Inc. for consideration consisting of 137,344 shares of restricted Class A common
stock and $875,000 of cash. The Company also accrued $57,000 of acquisition
costs. The assets of Southeast Research Partners primarily consisted of fixed
assets with a fair value of $160,000. The goodwill from the acquisition,
approximately $1.7 million, is tax deductible and will be amortized over its
estimated useful life of 15 years. Furthermore, pursuant to the Southeast
Research Partners acquisition agreement, 41,950 shares of restricted Class A
common stock were placed in an incentive retention pool for the benefit of
certain employees of Southeast Research Partners. The restricted stock has a
three year vesting period from the date of acquisition. All the restricted
shares issued in connection with the acquisition were issued under the
BankAtlantic Bancorp - Ryan Beck restricted stock incentive plan.
-10-
Also, pursuant to the acquisition agreement, certain employees of Southeast
Research Partners, as employees of RBCO, received options under the BankAtlantic
Bancorp 1998 stock option plan to purchase 35,000 shares of Class A common stock
with an exercise price of $7.25. The options vest in five years and expire ten
years from the date of grant. Southeast Research Partners will be operated as a
division of RBCO.
The exercise price for all of the above option grants was equal to the
market value of the underlying common stock at the date of grant.
On June 1, 1999, pursuant to the February 1998 acquisition agreement to
which RBCO acquired Cumberland Advisors, the Company issued 35,625 shares of
Class A common stock and made a cash payment of $266,000 to the former
Cumberland Advisors partners. Such additional consideration was considered an
adjustment to the purchase price of Cumberland Advisors and not compensation for
services subsequent to the acquisition date. The Class A common stock is subject
to restrictions prohibiting transfers for two years.
The following table sets forth the activity of all outstanding options
and restricted stock issued under the Company's benefit plans:
Outstanding Outstanding Restricted
Options Options Stock
Class B Class A Class A
----------- ----------- ---------
Outstanding at December 31, 1998 ..... 1,639,636 2,185,765 683,362
Issued in connection with acquisitions 0 35,000 179,294
Granted .............................. 0 1,276,750 29,356
Exercised or vested .................. (19,800) (35,612) (3,974)
Canceled ............................. (3,824) (121,433) (10,098)
---------- ----------- -------
Outstanding at June 30, 1999 ......... 1,616,012 3,340,470 877,940
========== =========== =======
Exercisable at June 30, 1999 ......... 1,015,171 291,551
========== ===========
Exercise price per share outstanding . $3.90-$4.00 $5.26-$14.06
========== ============
4. Sales of Financial Assets
The book value of securities sold from the securities available for sale
portfolio was as follows (in thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
1999 1998 1999 1998
------- ------- ------- --------
7 year balloon mortgage-backed securities $ 0 $ 44,873 $ 0 $ 121,232
5 year balloon mortgage-backed securities 0 0 0 27,151
U.S. treasury notes ..................... 0 4,980 0 4,980
Federal agency obligations .............. 0 9,977 0 9,977
------- ------- ------- --------
Total fixed rate securities ............. 0 59,830 0 163,340
------- ------- ------- --------
5-1 adjustable rate mortgage-backed
securities ............................ 78,240 0 138,481 121,447
3-1 adjustable rate mortgage-backed
securities ............................ 0 0 0 103,183
Marketable equity securities ............ 0 120 0 120
------- ------- ------- --------
Total ................................... $ 78,240 $ 59,950 $138,481 $ 388,090
======= ======= ======= ========
Gains on sales .......................... $ 839 $ 473 $ 1,418 $ 2,193
======= ======= ======= ========
During the three months ended June 30, 1999 the Company sold $23.9 million
and $457,000 of loans originated for resale and leases for gains of $197,000 and
$37,000, respectively. During the six months ended June 30, 1999 the Company
sold $65.0 million of loans originated for resale, $20.4 million of loans
purchased and classified as held for sale and $1.4 million of leases for gains
of $693,000, $60,000 and $114,000, respectively. During the three and six months
ended June 30, 1998, the Company sold $48.0 million and $141.9 million of loans
held for sale for gains of $1.1 million and $2.8 million, respectively. During
the three and six months ended June 30,
-11-
1998 the Company transferred $58.1 million and $108.5 million of purchased loans
from held for investment to held for sale. As part of its normal operations from
1996 through the latter part of 1998, the Company purchased bulk residential
loans to be held for investment. These bulk purchased loans are continually
evaluated and such evaluations may result in transfers from the held for
investment category to the held for sale category. Such transfers, if any, have
not and are not normally expected to exceed 10% of the average annual balance of
the portfolio.
5. Trading Securities
During the three and six months ended June 30, 1999, the Company realized a
$15,000 gain and a $54,000 loss, respectively, on securities trading. During the
three months ended June 30, 1999, the Company's securities trading activities
were expanded beyond trading in government securities, to include trading in
options and future contracts on Eurodollar time deposits that settle in three
months or less. Eurodollar time deposits are indexed to the LIBOR interest rate.
The Company did not have such activities during the three and six months ended
June 30, 1998. During the six months ended June 30, 1998, the Company
transferred $1.8 million of equity securities available for sale to trading
securities resulting in a $562,000 unrealized gain on the date of transfer. The
unrealized and realized gains on the trading securities for the six months ended
June 30, 1998 were $532,000 and $703,000, respectively. The RBCO gains on
trading securities were associated with sales and trading activities conducted
both as principal and as agent on behalf of individual and institutional
investor clients of RBCO. Transactions as principal involve making markets in
securities which are held in inventory to facilitate sales to and purchases from
customers. During the three and six months ended June 30, 1999, RBCO realized
net gains from principal transactions of $1.7 million and $4.7 million,
respectively. Furthermore, included in other liabilities was $4.2 million of
securities sold not yet purchased relating to RBCO trading activity.
The Company's trading securities consist of the following (in thousands):
June 30, December 31,
1999 1998
------- -----------
Debt obligations:
States and municipalities .. $10,690 $18,476
Corporations ............... 1,115 615
U.S. Government and agencies 341 172
Corporate equities ........... 7,866 10,448
Option and future contracts .. 30 0
Other ........................ 0 294
------ ------
$20,042 $30,005
====== ======
6. Real Estate Held for Development and Sale and Joint Venture Activities
In October 1997, the Company acquired St. Lucie West Holding Corp.
("SLWHC"), the developer of the master planned community of St. Lucie West in
St. Lucie County Florida. During the three and six months ended June 30, 1999,
SLWHC land sales resulted in gains of $1.7 million and $5.4 million,
respectively, compared to gains of $5.2 million and $5.3 million during the same
1998 periods. Since the third quarter of 1997 the Company has entered into six
joint venture partnerships with developers to develop residential, multi-family
and commercial non-residential properties. During the three and six months ended
June 30, 1999 the Company recorded equity in earnings (losses) from these joint
ventures of ($418,000) and $1.3 million, respectively. In March 1999, one of the
Company's real estate joint ventures closed on a land sale to an unrelated
developer resulting in the Company recognizing a $1.7 million gain.
Additionally, during the six months ended June 30, 1999, the Company
relinquished its potential equity participation rights in a loan accounted for
as a joint venture in exchange for substantial principal repayments on the loan
and a guarantee from a real estate investment trust resulting in the Company
transferring $20.8 million in investments in joint ventures to loans receivable.
Included in investment in real estate held for development and sale and joint
ventures at June 30, 1999 was $33.9 million of SLWHC land, $3.5 million of
equity investments in real estate joint ventures, $28.9 million of advances to
real estate joint ventures and $2.4 million of investments and advances to a
broker/dealer joint venture partner compared to $27.8 million of SLWHC land,
$7.3 million of equity investments in real estate joint ventures, $30.7 million
of advances to real estate joint ventures and $2.0 million of investments and
advances to a broker/dealer joint venture partner at December 31, 1998. During
the three and six months ended June 30,
-12-
1999, the Company capitalized $157,000 and $332,000 of interest expense in
connection with investments and advances to real estate joint ventures and
deferred $251,000 and $475,000 of interest income associated with loans to joint
ventures. Included in other expenses in the Company's Statement of Operations
during the three and six months ended June 30, 1999 was $150,000 and $300,000 of
consulting fees paid to the Abdo Companies, an affiliate of the Company.
7. Comprehensive Income
The income tax provision relating to the comprehensive income
reclassification adjustment in the statement of stockholders' equity for the six
months ended June 30, 1999 was $442,000 compared to a tax benefit at June 30,
1998 of $434,000.
8. Discontinued Operations, Restructuring Charges and Other Write-downs
During December 1998, the Company commenced a restructuring of its
operations and established a restructuring liability. The table below summarizes
amounts paid associated with the restructuring liability during the six months
ended June 30, 1999.
Amount Paid
or
Initial Written Down Ending
Type of Restructuring Charge Amount During Period Balance
- ---------------------------- ------- ------------- -------
Employee severance and benefits $ 1,000 $ (1,000) $ 0
Impairment of assets due to
facility closures ........... 1,085 (611) 474
Provision for lease contracts
on closed branches .......... 247 (97) 150
Other ......................... 233 (233) 0
------ ------- -----
Total restructuring charges . $ 2,565 $ (1,941) $ 624
====== ======= =====
There were no adjustments to the restructuring liability during the three
and six months ended June 30, 1999.
Discontinued Operations
- -----------------------
At December 31, 1998, the Board of Directors adopted a formal plan to
dispose of the Company's mortgage servicing business ("MSB"). Substantially all
of the assets were sold during the second quarter of 1999. The Company's plan to
exit the MSB included: (1) selling the mortgage servicing rights ("MSR") to
unrelated third parties; (2) terminating 70 full-time employees and (3)
terminating contracts associated with the MSB operations. The MSB had total
assets of $28.9 million and total liabilities of $58.5 million at June 30, 1999.
The assets primarily consist of receivables from the sale of MSR. The
liabilities are primarily advances by borrowers for taxes and insurance and
collections of principal and interest payments due to investors. During the
three and six months ended June 30, 1999, the Company recognized a $801,000 gain
net of taxes from discontinued operations.
Activity in the allowance established for exiting the MSB and the operating
activity from the measurement date (December 31, 1998) through June 30, 1999 is
as follows (in thousands):
Balance at Amounts Balance at
December 31, Paid/ June 30,
1998 Write downs Adjustments 1999
------------ ----------- ----------- ----------
Employee severance and benefits $ 925 $ 0 $ 0 $ 925
Provision for servicing contract
cancellation ................. 900 725 175 0
Fixed asset write-downs ........ 430 70 0 360
Estimated cost to sell MSR ..... 3,600 619 (74) 3,055
Anticipated loss from operations
through disposal date ........ 4,145 812 1,189 2,144
------ ------ ------ ------
Total ......................... $10,000 $ 2,226 $ 1,290 $ 6,484
======= ====== ====== ======
-13-
The final costs of exiting the MSB are estimates and are subject to change
based on completeness of underlying loan documents, transferability issues and
the amount of time necessary to complete the exit plan. During the six months
ended June 30, 1999 the MSB anticipated loss from operations was adjusted to
reflect slower loan repayment speeds than projected, higher than anticipated
servicing contract fees, and higher than projected disposal costs. The Company
settled the sale of its servicing portfolio on July 8, 1999 and the majority of
servicing personnel left the Company on July 31, 1999. The operations of the MSB
and all costs associated with the sale of the MSR are anticipated to be
significantly completed by December 31, 1999. Changes in estimates will be
accounted for prospectively.
9. Segment Reporting
Operating segments are defined as components of an enterprise about which
separate financial information is available that is regularly reviewed by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Reportable segments consist of one or more operating
segments with similar economic characteristics, products and services,
production processes, type of customer, distribution system and regulatory
environment. The information provided for Segment Reporting is based on internal
reports utilized by management. Interest expense and certain revenue and expense
items are allocated to the various segments as interest expense and overhead.
The presentation and allocation of interest expense and overhead and the net
contribution calculated under the management approach may not reflect the actual
economic costs, contribution or results of operations of the unit as a stand
alone business. If a different basis of allocation was utilized, the relative
contributions of the segments might differ but the relative trends in segments
would, in management's view, likely not be impacted.
The following summarizes the aggregation of the Company's operating
segments into reportable segments:
Reportable Segment Operating Segments Aggregated
------------------ -----------------------------
Bank Investment Operations - Investment Division, Tax Certificate
Other Department, Government Trading, Equity
Portfolio
Bank Investment Operations - Real Estate Capital Services, Capital
Wholesale Residential Markets
Bank Loan Operations - Commercial Lending, Syndications, BA
Commercial Factors, Inc.
Bank Loan Operations - Residential Lending, CRA Lending,
Retail BankAtlantic Mortgage, Indirect
and Direct Consumer Lending, Small
Business Lending, International
and Trade Finance, Lease financing
Real Estate Operations BankAtlantic Development Corp. (includes
SLWHC and real estate joint ventures)
Investment Banking Operations Ryan, Beck & Co.
The accounting policies of the segments are generally the same as those
described in the summary of significant accounting policies. Intersegment
transactions consist of borrowings by real estate operations and investment
banking operations which are recorded based upon the terms of the underlying
loan agreements and are effectively eliminated in the interest expense and
overhead allocations.
-14-
The Company evaluates segment performance based on net contribution after
tax. The table below is segment information for continuing operations for the
three months ended June 30, 1999 and 1998:
Bank Investment Bank Loan
Operations Operations
------------------------ ---------------------
Investment
Wholesale Real Estate Banking Segment
(in thousands) Other Residential Commercial Retail Operations Operations Total
- -------------- --------- ----------- ---------- ------- ----------- ---------- ----------
JUNE 30, 1999
Interest income ............ $ 17,213 $ 22,060 $ 19,815 $ 13,725 $ 378 $ 340 $ 73,531
Interest expense and
overhead ................. (13,572) (17,710) (11,300) (7,208) (417) (222) (50,429)
Recovery from (provision
for) loan losses ......... 0 (117) 754 (6,306) 0 0 (5,669)
Non-interest income ........ 890 (106) 501 1,274 2,247 6,406 11,212
Segment profits before
taxes .................... 4,287 4,323 10,062 (1,880) 488 (3,378) 13,902
Provision for income
taxes .................... 1,626 1,640 3,816 (713) 185 (1,281) 5,273
--------- --------- -------- ------- ------ ------ ---------
Segment net income ......... $ 2,661 $ 2,683 $ 6,246 $ (1,167) $ 303 $(2,097) $ 8,629
========= ========= ======== ======= ====== ====== =========
Segment total assets ....... $1,131,549 $1,283,319 $ 897,299 $533,251 $66,818 $57,460 $3,969,696
========= ========= ======== ======= ====== ====== =========
JUNE 30, 1998
Interest income ............ $ 9,856 $ 26,135 $ 15,383 $ 13,649 $ 183 $ 0 $ 65,206
Interest expense and
overhead ................. (9,406) (21,405) (9,858) (8,842) (259) 0 (49,770)
Recovery from (provision ...
for) loan losses ......... 0 554 (727) (3,198) 0 0 (3,371)
Non-interest income ........ 481 (36) 480 1,851 5,677 0 8,453
Segment profits before taxes 121 4,174 3,658 (102) 3,916 0 11,767
Provision for income taxes . 49 1,684 1,476 (41) 1,580 0 4,748
--------- --------- -------- ------- ------ ------ ---------
Segment net income ......... $ 72 $ 2,490 $ 2,182 $ (61) $ 2,336 $ 0 $ 7,019
========= ========= ======== ======= ====== ====== =========
Segment total assets ....... $ 625,400 $1,552,451 $ 654,854 $555,031 $45,435 $61,460 $3,494,631
========= ========= ======== ======= ====== ====== =========
The following table is segment information for continuing operations for
the six months ended June 30, 1999 and 1998:
Bank Investment Bank Loan
Operations Operations
------------------------ ---------------------
Investment
Wholesale Real Estate Banking Segment
(in thousands) Other Residential Commercial Retail Operations Operations Total
- -------------- --------- ----------- ---------- ------- ----------- ---------- ----------
JUNE 30, 1999
Interest income ............ $ 29,221 $ 44,498 $ 38,000 $ 27,373 $ 154 $ 697 $ 139,943
Interest expense and
overhead ................. (23,597) (35,994) (21,513) (15,020) (807) (449) (97,380)
Recovery from (provision
for) loan losses ......... 0 (85) (133) (10,615) 0 0 (10,833)
Non-interest income ........ 1,416 (42) 891 2,653 5,387 15,346 25,651
Segment profits before taxes 6,001 7,525 16,481 (2,819) 4,131 (3,739) 27,580
Provision for income taxes . 2,309 2,916 6,375 (1,052) 1,570 (1,338) 10,780
--------- --------- -------- ------- ------ ------ ---------
Segment net income ......... $ 3,692 $ 4,609 $ 10,106 $ (1,767) $ 2,561 $(2,401) $ 16,800
======== ========= ======== ======= ====== ====== =========
-15-
Bank Investment Bank Loan
Operations Operations
------------------------ ---------------------
Investment
Wholesale Real Estate Banking Segment
(in thousands) Other Residential Commercial Retail Operations Operations Total
- -------------- --------- ----------- ---------- ------- ----------- ---------- ----------
JUNE 30, 1998
Interest income ............ $ 22,597 $ 46,064 $ 29,484 $ 26,688 $ 392 $ 0 $ 125,225
Interest expense and
overhead ................. (21,445) (37,014) (19,134) (17,577) 122 0 (95,048)
Recovery from (provision
for) loan losses ......... 0 (125) (1,181) (5,472) 0 0 (6,778)
Non-interest income ........ 2,272 979 763 3,165 5,802 0 12,981
Segment profits before taxes 1,239 8,324 7,347 (101) 2,610 0 19,419
Provision for income taxes . 459 3,206 2,828 (41) 1,101 0 7,553
-------- --------- -------- ------- ----- ----- --------
Segment net income ......... $ 780 $ 5,118 $ 4,519 $ (60) $1,509 $ 0 $ 11,866
======== ========= ======== ======= ===== ===== ========
The difference between total segment assets and segment non-interest income
and consolidated assets, and noninterest income are as follows:
At June 30,
------------------------
(in thousands) 1999 1998
- -------------- --------- ---------
Total Assets
Total assets for reportable segments $3,969,697 $3,494,631
Assets in discontinued operations .. 28,919 61,043
Assets in overhead ................. 250,591 200,897
--------- ---------
Total consolidated assets .......... $4,249,207 $3,756,571
========= =========
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
(in thousands) 1999 1998 1999 1998
- -------------- ------ ------ ------ ------
Noninterest Income
Total non-interest income for
reportable segments ............ $11,212 $ 8,453 $25,651 $12,981
Items included in interest expense
and overhead:
Transaction fee income .......... 3,428 3,040 7,019 5,640
ATM fees ........................ 2,504 1,590 4,703 2,887
Other deposit related fees ...... 1,534 1,229 4,774 2,159
------ ------ ------ ------
Total consolidated non-interest
income ........................ $18,678 $14,312 $42,147 $23,667
====== ====== ====== ======
10. Reclassifications
Certain amounts for prior periods have been reclassified to conform with
the statement presentation for 1999.
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that involve substantial risks and uncertainties. When used in this
report, or in the documents incorporated by reference herein, the words
"anticipate", "believe", "estimate", "may", "intend", "expect" and similar
expressions identify certain of such forward-looking statements. Actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained herein. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, including but not limited
to, the risks and uncertainties associated with the implementation of and the
realization of benefits from its restructuring initiatives and expense
reductions, economic, competitive and other factors affecting the Company and
its operations, markets, products and services, changes in interest rates and
economic policies, the success of technological, strategic and business
initiatives, significant growth in banking as well as non-banking initiatives,
Year 2000 issues and other factors discussed elsewhere in this report and other
reports filed by the Company with the Securities and Exchange Commission
("SEC"). Many of these factors are beyond the Company's control.
Results of Operations
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
(In thousands, except per share data) 1999 1998 1999 1998
------ ------ ------ ------
Income from continuing operations $8,629 $7,019 $16,800 $11,866
Income (loss) from discontinued
operations net of taxes ....... 801 (628) 801 (219)
----- ----- ------ ------
Net income ...................... $9,430 $6,391 $17,601 $11,647
===== ===== ====== ======
CLASS A COMMON SHARES
Basic earnings per share from
continuing operations ......... $ 0.25 $ 0.22 $ 0.49 $ 0.37
Basic earnings (loss) per share
from discontinued operations .. 0.02 (0.02) 0.02 0.00
----- ----- ------ ------
Basic earnings per share ........ $ 0.27 $ 0.20 $ 0.51 $ 0.37
===== ===== ====== ======
Diluted earnings per share from
continuing operations ......... $ 0.20 $ 0.17 $ 0.38 $ 0.30
Diluted earnings (loss) per share
from discontinued operations .. 0.01 (0.01) 0.02 (0.01)
----- ----- ------ ------
Diluted earnings per share ..... $ 0.21 $ 0.16 $ 0.40 $ 0.29
===== ===== ====== ======
CLASS B COMMON SHARES
Basic earnings per share from
continuing operations ......... $ 0.23 $ 0.20 $ 0.44 $ 0.33
Basic earnings (loss) per share
from discontinued operations .. 0.02 (0.02) 0.02 0.00
----- ----- ------ ------
Basic earnings per share ........ $ 0.25 $ 0.18 $ 0.46 $ 0.33
===== ===== ====== ======
Diluted earnings per share from
continuing operations ......... $ 0.19 $ 0.17 $ 0.36 $ 0.28
Diluted earnings (loss) per share
from discontinued operations .. 0.01 (0.01) 0.02 0.00
----- ----- ------ ------
Diluted earnings per share ...... $ 0.20 $ 0.16 $ 0.38 $ 0.28
===== ===== ====== ======
CONTINUING OPERATIONS - Income from continuing operations increased by 23%
during the three months ended June 30, 1999 compared to the same period during
1998. The primary reasons for the increase in income from continuing operations
were:
1) an improvement in net interest income resulting from an increase in
interest earning assets and recognition of deferred interest income on
a loan accounted for as an investment in a joint venture during 1998,
-17-
2) higher transaction fee income resulting from changes made to the
pricing of the Company's deposit products,
3) the sale of a branch location for a $1.5 million gain,
4) the sale of one parcel of previously foreclosed commercial real estate
for a $1.3 million gain,
5) a decline in employee compensation from bank operations due to a
reduction of the Company's full time employees by approximately 201,
6) lower other expenses from bank operations caused by the December 1998
restructuring, and
7) a decline in advertising expense.
The above improvements in income from continuing operations were partially
offset by:
1) an increase in the provision for loan losses resulting from small
business loan charge-offs,
2) lower trading securities and loans held for sale gains,
3) higher occupancy costs due to an expanded branch and ATM network,
4) lower gains from real estate sales and real estate joint venture
operations, and
5) a $3.1 million loss before taxes relating to the activities/operations
of RBCO.
Income from continuing operations increased by 42% during the six months
ended June 30, 1999 compared to the same period during 1998. The primary reasons
for the increase in income from continuing operations were related to the items
discussed above for the quarter as well as earnings from the Company's real
estate joint venture activities.
DISCONTINUED OPERATIONS - Income from discontinued operations for the three
and six months ended June 30, 1999 was $801,000 compared to losses of $628,000
and $219,000, net of income taxes, respectively for the same 1998 periods.
Substantially all of the mortgage servicing assets were sold during the second
quarter. Income from discontinued operations resulted primarily from slower loan
repayments than originally estimated which were caused by rising residential
loan interest rates during the period. Losses from discontinued operations
during 1998 resulted from accelerated amortization of mortgage servicing rights
reflecting prepayments of loans during the period and higher operating expenses.
Net Interest Income
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
(In thousands) 1999 1998 Change 1999 1998 Change
- -------------- ------- ------- ------ ------- ------- ------
Interest and fees on loans and leases $ 55,369 $ 55,207 $ 162 $108,933 $102,527 $ 6,406
Interest on banker's acceptances .... 200 383 (183) 389 871 (482)
Interest and dividends on securities
available for sale ................ 14,618 7,385 7,233 24,671 17,372 7,299
Interest and dividends on investment
securities held to maturity and
trading securities ............... 3,344 2,231 1,113 5,950 4,455 1,495
Interest on deposits ................ (20,529) (16,606) (3,923) (37,120) (32,973) (4,147)
Interest on advances from FHLB ...... (13,337) (13,760) 423 (26,834) (24,472) (2,362)
Interest on securities sold under
agreements to repurchase ......... (4,353) (3,496) (857) (8,397) (6,814) (1,583)
Interest on subordinated debentures,
notes payable and guaranteed
preferred interest in the
Company's Junior Subordinated
Debentures ....................... (4,912) (4,850) (62) (9,699) (9,789) 90
Capitalized interest ................ 157 218 (61) 332 218 114
------- ------- ------ ------- ------- ------
Net interest income ............... $ 30,557 $ 26,712 $ 2,324 $ 58,225 $ 51,395 $ 6,830
======= ======= ====== ======= ======= ======
Net interest spread ................. 2.95% 2.85% 0.10% 2.91% 2.86% 0.05%
======= ======= ====== ======= ======= ======
Net interest income increased by 14% during the three months ended June 30,
1999 compared to the same period in 1998. Total interest income increased by
$8.4 million while total interest expense increased by $4.5 million. The
increase in
-18-
interest income resulted from higher average interest earning assets, primarily
higher average securities available for sale balances and the recognition of
$818,000 of deferred interest income resulting from a loan accounted for as a
joint venture during 1998. During 1999 the Company relinquished its potential
equity participation rights in the loan in exchange for substantial repayments
on the loan and a guarantee from a real estate investment trust. The higher
average interest earning assets during the period were partially offset by lower
yields.
The increase in the net interest spread during the three and six months
ended June 30, 1999 compared to the same 1998 period resulted from relatively
lower short term borrowing rates during the 1999 period. The lower short term
borrowing rates were partially offset by lower yields on earning assets due to
the decline in the prime interest rate in 1998 and a shift in the interest
earning asset portfolio mix from higher yielding loan receivables to lower
yielding securities available for sale.
Loan interest income increased due to the recognition of deferred interest
income mentioned above. Overall loan average balances during the three months
ended June 30, 1999 and 1998 were approximately the same. Increases in small
business, commercial real estate and corporate syndication loan average balances
were substantially offset by lower residential and consumer loan average
balances. The decline in consumer loan average balances resulted from the
Company ceasing the origination of indirect consumer loans as part of its
December 1998 restructuring plan.
Loan origination and commitment fees collected are deferred net of direct
costs and are being amortized to interest income over the estimated life of the
loan, adjusted for prepayments using the level yield method.
Interest income from banker's acceptances was lower during the three months
ended June 30, 1999 compared to the same 1998 period due to a decline in average
balances. Banker's acceptances interest income during 1999 was primarily from
international banking and trade finance relationships while the 1998 interest
income was from investment activities.
The increased securities available for sale average balances resulted from
the purchase during the six months ended June 30, 1999 of $611.1 million of
REMIC mortgage backed securities. As a result of the above purchases, securities
available for sale average balances increased from $499.8 million during the
three months ended June 30, 1998 to $968.3 million for the same 1999 period.
The increase in interest and dividends on investment securities held to
maturity and trading securities primarily resulted from interest income
associated with the RBCO trading portfolio and higher tax certificate average
balances and yields.
The lower yields on earning assets resulted from a change in the mix of
earning assets from higher yielding loans to lower yielding securities available
for sale. During the three months ended June 30, 1998, securities available for
sale were 15.2% of total earning assets compared to 25.7% for the three months
ended June 30, 1999.
The increase in deposit expense during the three months ended June 30, 1999
compared to the same 1998 period resulted from higher average balances. The
increased deposit average balances resulted from the acquisition of brokered
deposits primarily through RBCO and public funds. The average balance of
brokered deposits and public funds increased from $31.3 million during the three
months ended June 30, 1998 to $444.0 million during the same 1999 period. The
amount of time deposits acquired through RBCO during the three and six months
ended June 30, 1999 were $147.2 million and $271.5 million, respectively.
The decrease in interest expense on advances from FHLB was primarily due to
lower average balances resulting from the redemption of a $25 million callable
advance.
The higher interest expense on securities sold under agreements to
repurchase resulted from higher average balances during 1999, partially offset
by lower rates. The higher average balances funded the purchase of securities
available for sale and the decline in rates reflect the lower interest rate
environment during 1999.
-19-
The increase in interest on subordinated debentures, guaranteed preferred
interest in the Company's Junior Subordinated Debentures and notes and bonds
payable resulted from higher average balances associated with St. Lucie West
utility bonds and road improvement notes payable during the three months ended
June 30, 1999 compared to the same period during 1998.
Interest expense of $157,000 and $218,000 was capitalized during the three
months ended June 30, 1999 and 1998, respectively, in connection with
investments and advances to real estate joint venture partnerships.
Net interest income increased by 14% during the six months ended June 30,
1999 compared to the same period in 1998. Total interest income increased by
$14.7 million while total interest expense increased by $7.9 million. The
increase in interest income resulted from higher average interest earning
assets, primarily higher loans receivable and securities available for sale
average balances. The higher net interest income primarily resulted from the
items discussed above for the three months ended June 30, 1999 as well as the
recognition of $1.1 million of interest income resulting from the full repayment
of a $5.9 million commercial loan which had been classified as nonaccrual.
Provision for Loan Losses
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
1999 1998 1999 1998
------ ------ ------- ------
Balance, beginning of period ..... $37,350 $29,950 $ 37,950 $28,450
Charge-offs:
Commercial real estate loans ..... (53) (167) (211) (268)
Nonmortgage commercial ........... (61) (783) (61) (783)
Lease financing .................. (245) (266) (548) (351)
Small business - real estate ..... (75) 0 (85) 0
Small business - non-mortgage .... (2,738) (140) (4,831) (158)
Consumer loans - indirect ........ (2,322) (2,038) (5,618) (4,285)
Consumer loans - direct .......... (517) (600) (1,212) (1,058)
Residential real estate loans .... 0 (38) 0 (61)
Purchased residential real
estate loans ................... (44) 0 (103) (108)
------ ------ ------- ------
(6,055) (4,032) (12,669) (7,072)
------ ------ ------- ------
Recoveries:
Commercial real estate loans ..... 198 2 198 3
Lease financing .................. 83 75 149 112
Nonmortgage commercial ........... 10 230 150 389
Small business - non-mortgage .... 38 17 74 17
Consumer loans - indirect ........ 570 422 950 767
Consumer loans - direct .......... 237 173 465 480
------ ------ ------- ------
1,136 919 1,986 1,768
------ ------ ------- ------
Net charge-offs .................. (4,919) (3,113) (10,683) (5,304)
Additions charged to operations .. 5,669 3,371 10,833 6,778
Allowance for loan losses acquired 0 392 0 676
------ ------ ------- ------
Balance, end of period ........... $38,100 $ 30,600 $ 38,100 $30,600
====== ======= ======= ======
The provision for loan losses increased during the three and six months
ended June 30, 1999 compared to the same 1998 periods due to:
1) charge-offs in the indirect consumer loan portfolio,
2) charge-offs in the small business non-mortgage loan portfolio, and
3) delinquency and charge-off trends in the small business loan portfolio
increasing the allowance for loan losses.
-20-
The Company ceased the origination of indirect consumer loans as part of
its December 1998 restructuring. The high charge-offs in small business
non-mortgage loans resulted in modifications to the program that have been and
will continue to be implemented as the Company continues to address issues
relating to this portfolio.
The above increases in the provision for loan losses were partially offset
by lower nonmortgage commercial charge-offs associated with the Company's
factoring operations during 1998. The Company ceased its factoring operations
during 1998.
At the indicated dates the Company's risk elements and non-performing
assets were (in thousands):
June 30, December 31,
1999 1998
------- -----------
Nonaccrual:
Tax certificates .......................... $ 983 $ 765
Loans and leases .......................... 26,559 23,364
------ ------
Total nonaccrual .......................... 27,542 24,129
------ ------
Repossessed Assets:
Real estate owned, net of
allowance .............................. 4,552 5,503
REO acquired in connection with
bulk residential loan purchases ........ 847 0
Vehicles and equipment .................... 904 1,896
------ ------
Total repossessed assets .................. 6,303 7,399
------ ------
Contractually past due 90 days or
more (1) ................................ 5 3,182
------ ------
Total non-performing assets ............... 33,850 34,710
Restructured loans .......................... 0 7
------ ------
Total risk elements ....................... $33,850 $34,717
====== ======
(1) The majority of these loans at December 31, 1998 had matured and
the borrowers continued to make payments under the matured loan
agreement. BankAtlantic is in the process of renewing or extending
these matured loans.
The increase in nonaccrual loans resulted from:
1) a $1.9 million increase in small business nonaccrual loans, and
2) the purchase of $6.5 million of nonaccrual residential loans held for
sale as part of bulk purchases of residential loans.
The $6.5 million of nonaccrual loans and the $847,000 of REO were acquired
in connection with a $156 million bulk residential loan purchase from the
Resolution Trust Corporation. The Company intends to segregate the portfolio and
sell these loans to unrelated financial service companies. Such loans are valued
by individual loan pools at the lower of cost or market.
The increase in nonaccrual loans was partially offset by declines in:
1) consumer nonaccrual loans, due primarily to a change in the Company's
collection policy to aggressively repossess automobiles and the
cessation in December 1998 of indirect automobile lending,
2) delinquency trends for lease financing, and
3) nonaccrual commercial real estate loans resulting from the repayment
of a $5.9 million nonaccrual loan.
The decline in repossessed assets resulted from the sale of a $2.9 million
commercial real estate property and lower consumer repossessed automobiles. The
decline was partially offset by the foreclosure of a $2.2 million commercial
real estate property.
-21-
Non-Interest Income
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
(In thousands) 1999 1998 Change 1999 1998 Change
- -------------- ------ ------ ------ ------ ------ ------
NON-INTEREST INCOME EXCLUDING RBCO
AND REAL ESTATE OPERATIONS
Loan late fees and other loan
income ....................... $ 1,359 $ 1,211 $ 148 $ 2,489 $ 2,110 $ 379
Gains on sales of loans held for
sale ......................... 234 1,084 (850) 867 2,831 (1,964)
Trading account gains (losses) . 15 532 (517) (54) 703 (757)
Gains on sales of securities
available for sale ........... 839 473 366 1,418 2,193 (775)
Gains on sales of property and
equipment .................... 1,459 (1) 1,460 1,459 (3) 1,462
Transaction accounts ........... 3,428 3,040 388 7,019 5,640 1,379
ATM fees ....................... 2,504 1,590 914 4,703 2,887 1,816
Other .......................... 1,079 1,122 (43) 2,128 1,920 208
------ ------ ------ ------ ------ ------
Non-interest income excluding
RBCO and real estate
operations ................... 10,917 9,051 1,866 20,029 18,281 1,748
------ ------ ------ ------ ------ ------
RBCO OPERATIONS
Principal transactions ......... 1,704 0 1,704 4,704 0 4,704
Investment banking ............. 1,223 0 1,223 4,340 0 4,340
Commissions .................... 3,331 0 3,331 6,007 0 6,007
Other .......................... 146 0 146 293 0 293
------ ------ ------ ------ ------ ------
Non-interest income - RBCO ..... 6,404 0 6,404 15,344 0 15,344
------ ------ ------ ------ ------ ------
REAL ESTATE OPERATIONS
Gains on sales of real estate
held for development and
sale ......................... 1,720 5,159 (3,439) 5,387 5,259 128
Equity in earnings of
unconsolidated real estate
joint ventures ............... (418) 0 (418) 1,310 0 1,310
Other .......................... 55 102 (47) 77 127 (50)
------ ------ ------ ------ ------ ------
Non-interest income - real
estate operations ............ 1,357 5,261 (3,904) 6,774 5,386 1,388
------ ------ ------ ------ ------ ------
Total non-interest income ...... $18,678 $14,312 $ 4,366 $42,147 $23,667 $18,480
====== ====== ====== ====== ====== ======
Non-Interest Income Excluding RBCO and Real Estate Operations
Loan late fees and other fee income increased during the three and six
months ended June 30, 1999 compared to the same 1998 period. The increase
resulted from higher late fees, consumer loan extension fees, loan repayment
penalties, and trade finance fees. The additional late fee income was related to
additional fees collected on consumer loans.
During the three months ended June 30, 1999 the Company sold $23.9 million
and $457,000 of loans originated for resale and leases for gains shown on the
above table. During the six months ended June 30, 1999 the Company sold $60.3
million of loans originated for resale, $20.4 million of loans purchased and
classified as held for sale and $1.4 million of leases for gains shown on the
above table. During the three and six months ended June 30, 1998, the Company
sold $48.0 million and $141.9 million of loans held for sale for gains shown on
the above table. During the three and six months ended June 30, 1998 the Company
transferred $58.1 million and $108.5 million of purchased loans from held for
investment to held for sale. As part of its normal operations from 1996 through
the latter part of 1998, the Company purchased bulk residential loans to be held
for investment. These bulk purchased loans are continually evaluated and such
evaluations may result in transfers from the held for investment category to the
held for sale category. Such transfers, if any, have not and are not normally
expected to exceed 10% of the average annual balance of the portfolio.
-22-
During the three and six months ended June 30, 1999, two branches were
consolidated and the vacated property was sold for a gain categorized as gains
on sales of property and equipment as shown on the above table.
During the three months ended June 30, 1999 and 1998, the Company sold
$78.2 million and $60.0 million, respectively, of securities available for sale
for gains as shown on the above table. During the six months ended June 30, 1999
and 1998 the Company sold $138.5 million and $388.1 million of securities
available for sale for gains as shown on the above table.
During the three and six months ended June 30, 1999, the Company realized a
$15,000 gain and a $54,000 loss on securities trading. During the three months
ended June 30, 1999, the Company's trading activities were expanded beyond
trading in government securities to include trading in options and future
contracts on Eurodollar time deposits that settle in three month or less. The
Company did not have such activities during the three and six months ended June
30, 1998. During the six months ended June 30, 1998, the Company transferred
$1.8 million of equity securities available for sale to trading securities
resulting in a $562,000 unrealized gain on the date of transfer. The unrealized
and realized gains on trading securities for the six months ended June 30, 1998
were $532,000 and $703,000, respectively.
The increase in transaction fee income during the three and six months
ended June 30, 1999 compared to the same periods in 1998 resulted from:
1) an increase in the Company's non-interest bearing transaction
accounts, reflecting in part an increase in small business loans, and
2) changes made to the pricing of the Company's deposit products.
The significant increase in ATM fee income during 1999 was primarily the
result of an expanded ATM network. The Company's ATM network increased from 261
machines at June 30, 1998 to 774 machines at June 30, 1999.
The decline in other income during the three months ended June 30, 1999 was
due to lower commissions earned from brokers and teller check outsourcing. The
increase in other income during the six months ended June 30, 1999 compared to
the same period in 1998 resulted from other account service charges.
Non-interest Income - RBCO Operations
RBCO revenues are generated from principal transactions, investment banking
and commissions. Principal transactions are sales and trading activities of tax
exempt debt securities, taxable debt securities and equity securities.
Investment banking revenues include management fees and underwriting fees earned
in connection with all underwriting participations and selling concessions
earned in connection with RBCO's participation in tax-exempt debt, corporate
debt and equity underwriting. Commission revenues reflect fees earned from
retail customers upon the execution of equity security and mutual fund trades.
During the three and six months ended June 30, 1999 RBCO earned revenues on
principal transactions, investment banking and commissions as shown in the
preceding table. As previously noted, RBCO was acquired by the Company on June
30, 1998 in a transaction recorded under the purchase method of accounting.
During the three and six months ended June 30, 1999, RBCO's principal
transactions and investment banking revenues were less than historically
generated. Principal transaction revenues were adversely affected by unfavorable
market conditions and a lack of retail and institutional interest for small and
mid size financial service companies as well as higher losses associated with
RBCO's trading activities. However, to some extent, the lower investment banking
revenues during the periods reflects less equity underwriting income due
primarily to the timing of transactions. On July 12, 1999, RBCO announced the
completion of a $544 million initial public offering in which RBCO served as the
sole manager of the issue. This was the largest equity transaction underwritten
in RBCO's history and while a significant amount of its resources during the six
months ended June 30, 1999 were devoted to preparing for and executing this
transaction, income from this transaction will be included in third quarter
results.
-23-
Non-Interest Income - Real Estate Operations
Real estate held for development and sale represents the net profits on
sales of real estate by SLWHC. Equity in earnings (losses) from unconsolidated
joint ventures reflects the Company's six real estate joint ventures. During the
three and six months ended June 30, 1999 and 1998 SLWHC sold developed land for
gains as reported above. Other income represents accretion of SLWHC impact fee
receivables established at the acquisition date. The equity earnings (loss) from
real estate joint ventures during the three and six months ended June 30, 1999
primarily resulted from the operations of the joint ventures and the sale of
property in one joint venture.
Non-Interest Expenses
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
(In thousands) 1999 1998 Change 1999 1998 Change
- -------------- ------ ------ ------ ------ ------ ------
NON-INTEREST INCOME EXCLUDING RBCO
AND REAL ESTATE OPERATIONS
Employee compensation and benefits $ 9,034 $11,197 $(2,163) $18,675 $22,024 $(3,349)
Occupancy and equipment ........... 5,400 5,164 236 10,589 10,011 578
Federal insurance premium ......... 267 258 9 540 520 20
Advertising and promotion ......... 473 1,690 (1,217) 799 2,179 (1,380)
Amortization of cost over fair
value of net assets acquired .... 709 701 8 1,421 1,360 61
Foreclosed asset activity, net .... (1,355) 125 (1,480) (1,265) (46) (1,219)
Other ............................. 3,907 5,376 (1,469) 9,389 10,252 (863)
------ ------ ------ ------ ------ ------
Non-interest expenses ........... 18,435 24,511 (6,076) 40,148 46,300 (6,152)
------ ------ ------ ------ ------ ------
RBCO OPERATIONS
Employee compensation and benefits 6,481 0 6,481 12,931 0 12,931
Occupancy and equipment ........... 601 0 601 1,086 0 1,086
Advertising and promotion ......... 261 0 261 509 0 509
Amortization of cost over fair
value of net assets acquired .... 277 0 277 548 0 548
Other ............................. 2,006 0 2,006 3,982 0 3,982
------ ------ ------ ------ ------ ------
Non-interest expenses ........... 9,626 0 9,626 19,056 0 19,056
------ ------ ------ ------ ------ ------
REAL ESTATE OPERATIONS
Employee compensation and benefits 236 198 38 388 363 25
Advertising and promotion ......... 203 178 25 385 323 62
Selling, general and administrative 1,164 999 165 1,982 1,879 103
------ ------ ------ ------ ------ ------
Non-interest expenses ........... 1,603 1,375 228 2,755 2,565 190
------ ------ ------ ------ ------ ------
Total non-interest expenses ....... $29,664 $25,886 $ 3,778 $61,959 $48,865 $13,094
====== ====== ====== ====== ====== ======
The decrease in employee compensation and benefits during the three and six
months ended June 30, 1999 compared to the same periods in 1998 resulted
primarily from the Company's December 1998 restructuring which reduced the
Company's number of full time employees by approximately 115, and froze the
accrual of benefits under the defined benefit pension plan. During the six
months ended June 30, 1999 the Company consolidated its branch network and
reduced the number of sales associates. The Company's full time employees for
bank operations declined by 201 at June 30, 1999 compared to June 30, 1998.
Occupancy and equipment expenses increased during the three and six months
ended June 30, 1999 compared to the same periods in 1998 due to the expanded ATM
network resulting in higher rental and repair and maintenance expenses.
-24-
The decrease in advertising and promotion expenses during the three and six
months ended June 30, 1999 compared to the same 1998 periods resulted from:
1) the introduction of BankAtlantic's new corporate logo during 1998
using a TV identity campaign,
2) expenses relating to new products introduced by BankAtlantic during
1998, and
3) promotions to introduce BankAtlantic's new branches in Miami-Dade
County, Florida during 1998.
Included in foreclosed asset activity, net during the three and six months
ended June 30, 1999 was a $1.3 million gain from the sale of one parcel of
previously foreclosed commercial real estate property.
The decrease in other expenses during the three and six months ended June
30, 1999 compared to the same periods during 1998 reflects lower operating
expenses resulting primarily from the December 1998 restructuring and
management's continuing focus on expense reduction . As a consequence of the
above, the Company experienced a significant decrease in the following expense
categories:
1) Stationery, printing and supplies,
2) Postage, and
3) Consulting.
Additionally, corporate legal fees declined primarily as a result of an
insurance company reimbursement of $326,000 of previously expensed legal fees.
The above declines in other expenses were partially offset by higher ATM
expenses due to the expanded ATM network.
RBCO Non-Interest Expenses
Included in employee compensation and benefits during the three and six
months ended June 30, 1999 was $511,000 and $1.0 million of retention pool
compensation amortization. The retention pool restricted Class A common stock
was awarded to key employees of RBCO in connection with the Company's
acquisition of RBCO in June 1998. Occupancy and equipment expense primarily
consisted of rent and maintenance expense, depreciation expense and data
processing charges. Other expenses were primarily floor brokerage and clearing
fees, professional fees, third party quotation services and general and
administrative costs.
RBCO non-interest expenses were impacted by a significant expansion of
business activities including the hiring of additional key personnel, the
diversification into the healthcare, consumer and technology industries, the
expansion of its investment banking operations and the expansion of its retail
operation into BankAtlantic branches. In addition, on June 28, 1999, RBCO
acquired the assets and employees of Southeast Research Partners, a Florida
based research and institutional brokerage company.
Real Estate Operations Non-Interest Expenses
Real estate operations non-interest expenses primarily related to SLWHC
expenses. Selling, general and administrative expenses were mainly real estate
taxes on developed land and joint venture consulting fees.
-25-
Segment Reporting
The table below provides segment information for continuing operations for
the three and six months ended June 30, 1999 and 1998:
For the Three Months For the Six Months
(in thousands) Ended June 30, Ended June 30,
- ----------------------------------- -------------------- ------------------
1999 1998 1999 1998
Net Contribution After Income Taxes ------ ----- ------ ------
Bank investment operations -
wholesale residential ........... $ 2,683 $2,490 $ 4,609 $ 5,118
Bank investment operations -
other ........................... 2,661 72 3,692 780
Bank loan operations - retail
products ........................ (1,167) (61) (1,767) (60)
Bank loan operations - commercial
products ........................ 6,246 2,182 10,106 4,518
Real estate operations ............ 303 2,336 2,561 1,509
Investment banking operations ..... (2,097) 0 (2,401) 0
------ ----- ------ ------
Net contribution .................. $ 8,629 $7,019 $16,800 $11,865
====== ===== ====== ======
Bank Investment Operations
Segment net contribution from bank investment operations - other improved
during the three and six months ended June 30, 1999 compared to the same periods
in 1998. The improvement resulted from increased earning assets relating
primarily to the purchase of REMIC securities during the period. The higher
interest expense and overhead also resulted from an increase in earning assets
during the 1999 periods compared to the same periods during 1998. Non-interest
income improved during the three months ended June 30, 1999 compared to the same
period during 1998 due to higher gains of sales on securities available for
sale. Likewise, non-interest income decreased during the six months ended June
30, 1999 compared to the same period in 1998 due to lower gains on sales of
securities available for sale.
Segment net contribution from bank investment operations - wholesale
residential increased during the three months ended June 30, 1999 compared to
the same period in 1998 primarily from lower direct expenses resulting from the
Company's 1998 restructuring, partially offset by a higher provision for loan
losses. Segment net contribution from bank investment operations - wholesale
residential decreased during the six months ended June 30, 1999 compared to the
same period in 1998 primarily from lower gains from the sale of loans, and a
decline in purchased residential loan yields due to accelerated premium
amortization resulting from prepayments.
Bank Loan Operations
Segment net contribution from bank loan operations - commercial increased
during the three months ended June 30, 1999 compared to the same 1998 period due
to an improvement in the net margin, recognition of $818,000 of deferred
interest income from a commercial real estate loan accounted for as a joint
venture during 1998, higher interest earning balances resulting from loan growth
and lower provision for loan losses due to improvements in asset quality of the
portfolio. Segment net contribution from bank loan operations - commercial also
increased during the six months ended June 30, 1999 compared to the same period
in 1998 due to the items mentioned above as well as interest income recognized
upon the full repayment of a $5.9 million nonaccrual loan.
Segment net contribution from bank loan operations - retail declined during
the three and six months ended June 30, 1999 primarily from an increase in the
provision for loan losses. The increase in the loan loss provision was partially
offset by higher yields earned on the retail portfolio reflecting an increase in
average interest earning loan balances. The additional provision for loan losses
during 1999 was the result of increased small business and indirect charge-offs
and delinquency trends.
-26-
Real Estate Operations
Segment net contribution from real estate operations during the three
months ended June 30, 1999 consisted of land sales less operating costs from the
Company's wholly owned subsidiary SLWHC and equity in losses from the Company's
six real estate joint ventures. Real estate operations segment net contribution
during the six months ended June 30, 1998 consisted of a land sale and operating
costs from SLWHC and equity in earnings from the Company's six real estate joint
ventures. Such equity in earnings from joint ventures primarily resulted from a
$1.7 million gain in March 1999 from a joint venturer sale of land.
Investment Banking Operations
Investment banking operations consisted of the operations of RBCO. During
the three and six months ended June 30, 1999, RBCO's net loss reflected lower
than historically generated revenues from principal transactions and investment
banking transactions and higher operating expenses associated with RBCO's
expansion of its business activities. RBCO was acquired on June 30, 1998.
Financial Condition
The Company's total assets at June 30, 1999 were $4.2 billion compared to
$3.8 billion at December 31, 1998. The increase in total assets primarily
resulted from increased:
1) loans held for sale balances due to bulk purchases of residential
loans categorized as held for sale,
2) securities available for sale resulting from the purchase of REMIC's,
3) tax certificates due to certificates purchased in Florida in June
1999,
4) other assets reflecting the receivable generated upon the sale of
mortgage servicing rights in April 1999, and
5) cost over fair value of net assets acquired reflecting the Southeast
Research Partners asset acquisition and contingent payments made in
connection with the February 1998 acquisition by RBCO of Cumberland
Advisors.
The above increases in total assets were partially offset by decreased:
1) loans receivable resulting from the repayment of consumer indirect
automobile loans and purchased residential loans held to maturity,
2) mortgage servicing rights resulting from the April 1999 sale,
3) FHLB stock reflecting lower purchased residential loan balances and
lower advance balances,
4) real estate owned caused by the sale of foreclosed commercial real
estate property, partially offset by higher REO acquired in connection
with bulk residential loan purchases,
5) office property and equipment reflecting the sale of a building used
as a branch partially offset by the Southeast Research Partners asset
acquisition, and
6) trading securities due to lower RBCO state and municipality bond
inventories.
The Company's total liabilities at June 30, 1999 were $4.0 billion compared
to $3.5 billion at December 31, 1998. The increase in total liabilities
primarily resulted from increased:
1) deposit balances reflecting the acquisition of brokered deposits and
public funds and an increase in noninterest bearing deposit balances.
The majority of the brokered deposits were acquired through RBCO,
2) securities sold under agreements to repurchase used to fund securities
available for sale growth, and
3) bonds payable resulting from a roadway and improvement bond associated
with the St. Lucie West development.
-27-
The above increases in total liabilities were partially offset by
decreased:
1) advances from FHLB due to maturities and redemptions,
2) federal funds purchased resulting from a shift in short term
borrowings to securities sold under agreements to repurchase, and
3) advances by borrowers for taxes and insurance reflecting a decline in
balances of loans serviced for others.
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in
market valuation which arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk, and equity price risk. The Company's primary
market risk is interest rate risk and its secondary market risk is equity price
risk.
Equity Price Risk
The Company maintains a portfolio of trading and available for sale
securities which subjects the Company to equity pricing risks. The change in
fair values of equity securities represents instantaneous changes in all equity
prices segregated by trading securities, securities sold not yet purchased and
available for sale securities. The following are hypothetical changes in the
fair value of the Company's securities sold not yet purchased, trading and
available for sale securities at June 30, 1999 based on percentage changes in
fair value. Actual future price appreciation or depreciation may be different
from the changes identified in the table below.
Available Securities Total
Percent Trading for Sale Sold Not Dollar
Change in Securities Securities Yet Change from
Fair Value Fair Value Fair Value Purchased 0%
---------- ---------- ---------- --------- -----------
(dollars in thousands)
20 % $24,050 $33,750 $(3,321) $ 10,464
10 % $22,046 $30,938 $(3,736) $ 5,232
0 % $20,042 $28,125 $(4,151) $ 0
(10)% $18,038 $25,313 $(4,566) $ (5,232)
(20)% $16,034 $22,500 $(4,981) $(10,464)
RBCO is a market maker in equity securities which could from time to time
require them to hold securities during declining markets. The Company attempts
to manage its equity price risk by maintaining a relatively small portfolio of
securities and evaluating equity securities as part of the Company's overall
asset and liability management process.
Interest Rate Risk
The majority of the Company's assets and liabilities are monetary in nature
subjecting the Company to significant interest rate risk. During 1998, the
Company began trading government securities which are generally bought and sold
on the same day. During the second quarter of 1999 the Company's trading
activities were expanded beyond trading in government securities to trading in
options and futures on Eurodollar time deposits which expire in three months or
less. Eurodollar time deposits are indexed to the LIBOR. The Company has
developed a model using vendor software to quantify its interest rate risk. A
sensitivity analysis was performed measuring the Company's potential gains and
losses in net portfolio fair values of interest rate sensitive instruments at
June 30, 1999 resulting from a change in interest rates. Interest rate sensitive
instruments included in the model were the Company's:
/bullet/ loan portfolio,
/bullet/ debt securities available for sale,
/bullet/ investment securities,
/bullet/ FHLB stock,
/bullet/ Federal Funds sold,
/bullet/ deposits,
-28-
/bullet/ advances from FHLB,
/bullet/ securities sold under agreements to repurchase,
/bullet/ Federal Funds purchased,
/bullet/ Notes and Bonds payable,
/bullet/ Subordinated Debentures,
/bullet/ Trust Preferred Securities,
/bullet/ off-balance sheet loan commitments,
/bullet/ government securities, and
/bullet/ Eurodollar time deposit options and futures
The Company has no off-balance sheet derivatives other than fixed rate loan
commitments aggregating $13.5 million at
June 30, 1999.
The model calculates the net potential gains and losses in net portfolio
fair value by:
(i) discounting anticipated cash flows from existing assets, liabilities
and off-balance sheet contracts at market rates to determine fair
values at June 30, 1999,
(ii) discounting the above expected cash flows based on instantaneous and
parallel shifts in the yield curve to determine fair values, and
(iii) the difference between the fair value calculated in (i) and (ii) is
the potential gain and loss in net portfolio fair values.
Management has made estimates of fair value discount rates that it believes
to be reasonable. However, because there is no quoted market for many of these
financial instruments, management has no basis to determine whether the fair
value presented would be indicative of the value negotiated in an actual sale.
BankAtlantic's fair value estimates do not consider the tax effect that would be
associated with the disposition of the assets or liabilities at their fair value
estimates.
Presented below is an analysis of the Company's interest rate risk at June
30, 1999 as calculated utilizing the Company's model. The table measures changes
in net portfolio value for instantaneous and parallel shifts in the yield curve
in 100 basis point increments up or down.
Changes Net Portfolio Dollar
in Rate Value Amount Change
------- ------------- --------
(Dollars in thousands)
+200 bp $ 298,084 $(42,090)
+100 bp $ 317,344 $(22,830)
0 bp $ 340,174 $ 0
(100) bp $ 362,490 $ 22,316
(200) bp $ 339,333 $ (841)
In preparing the above table, the Company makes various assumptions to
determine the net portfolio value at the assumed changes in interest rate. These
assumptions include:
/bullet/ loan prepayment rates,
/bullet/ deposit decay rates,
/bullet/ market values of certain assets under the representative
interest rate scenarios, and
/bullet/ repricing of certain borrowings
It was also assumed that delinquency rates would not change as a result of
changes in interest rates although there can be no assurance that this would be
the case. Even if interest rates change in the designated increments, there can
be no assurance that the Company's assets and liabilities would be impacted as
indicated in the table above. In addition, a change in U.S. Treasury rates in
the designated amounts, accompanied by a change in the shape of the yield curve
could cause significantly different changes to the fair values than indicated
above. Furthermore, the result of the calculations in the preceding table are
subject to significant deviations based upon actual future events, including
anticipatory and reactive measures which the Company may take in the future.
-29-
Liquidity and Capital Resources
On July 15, 1999, the Company announced it had established strategic
alliances for the purpose of providing BankAtlantic customers with a full range
of Internet banking and financial services. The Company has entered into
contracts with Edify Corporation, NCR Corporation, M&I Data Services and
CheckFree Corporation. These companies will assist BankAtlantic in the
development of web based banking. The cost of the above contracts is estimated
at $1.7 million. The majority of the costs will be capitalized and amortized
over three years.
During the three months ended June 30, 1999, the Company acquired for $3.0
million a 9.9% ownership in 1stVirtual, Inc., an independent company formed to
engage in internet banking that recently raised $31 million in a private
offering from certain institutional and individual investors. BankAtlantic will
allow 1stVirtual to operate as a division of BankAtlantic until such time as
their thrift charter is obtained. At that time, subject to the terms of a
purchase and assumption agreement, 1stVirtual will buy the assets and
liabilities of the division at cost. At the time of the acquisition of the
division, BankAtlantic will be entitled to receive the greater of 50% of
1stVirtual's profits from the calendar month after deposit products are first
offered by the division through the end of the calendar month subsequent to the
closing date or $10,000 per month for the period that deposit products are first
offered by the division through the closing date. BankAtlantic will be
reimbursed for 100% of any losses in the division. This investment in 1stVirtual
is included in the Statement of Financial Condition as securities available for
sale.
On July 14, 1999, the Company's Board of Directors approved the repurchase
on the open market of up to 3.5 million shares of the Company's common stock.
The Board authorized the repurchase of common stock on a "time-to-time" basis,
depending upon market conditions and subject to compliance with applicable
securities laws.
BankAtlantic's primary sources of funds during the first six months of 1999
were from principal collected on loans, securities available for sale and
investment securities held to maturity, sales of securities available for sale,
FHLB stock, REO, and real estate held for development, borrowings from FHLB
advances, securities sold under agreements to repurchase, sales of property and
equipment, sales of FHLB stock and deposit inflows. These funds were primarily
utilized to fund operating expenses, deposit outflows, loan purchases and
fundings, pay dividends, repay advances from borrowers for taxes and insurance
and to purchase FHLB stock, tax certificates, trading securities and securities
available for sale and acquire common stock. At June 30, 1999, BankAtlantic met
all applicable liquidity and regulatory capital requirements.
During the six months ended June 30, 1999 the Company pledged
mortgage-backed securities available for sale as collateral to an unrelated
financial institution upon issuance of an irrevocable standby letter of credit.
The letter of credit secures a loan to one of the Company's joint ventures.
The Company is currently considering various corporate alternatives
concerning its real estate operations conducted through its wholly owned
subsidiary BankAtlantic Development Corporation ("BDC"). The Company was
originally considering a spin off of BDC to shareholders; however, as a result
of potential adverse tax consequences, the Company is now exploring other
alternatives, including the possibility of selling a portion of BDC's common
stock. Any transaction would be subject to Board of Directors' and regulatory
approval.
The Company's commitments to originate loans at June 30, 1999 were $150.0
million compared to $135.1 million at June 30, 1998. Additionally at June 30,
1998, the Company had commitments to purchase loans and securities available for
sale of $17.0 million and $123.6 million, respectively. The Company did not have
any commitments to purchase loans and securities available for sale at June 30,
1999. At June 30, 1999, loan commitments were 5.59% of net loans receivable. At
June 30, 1999, commitments to sell fixed rate mortgage backed securities were
$4.0 million.
LTI is obligated on leases sold with full recourse by LTI to investors
prior to the Company's acquisition. Under the terms of such agreements, LTI is
subject to recourse for 100% of the remaining balance of the lease receivable
sold upon a default by the lessees. At June 30, 1999, the amount of lease
payments subject to such recourse provisions was approximately $4.2 million and
a $169,000 estimated liability on leases sold with recourse is included in other
liabilities in the Company's Statement of Financial Condition.
-30-
At the indicated date BankAtlantic's capital amounts and ratios were:
To be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------- ---------------- -----------------
(In thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------- ------- ----- ------ ----- ------- -----
At June 30, 1999:
Total risk-based capital $347,451 13.61% > $204,252 > 8.00% > $255,315 > 10.00%
= = = =
Tier I risk-based capital $315,453 12.36% > $102,126 > 4.00% > $153,189 > 6.00%
= = = =
Tangible capital ........ $315,453 7.73% > $ 61,177 > 1.50% > $ 61,177 > 1.50%
= = = =
Core capital ............ $315,453 7.73% > $163,137 > 4.00% > $203,922 > 5.00%
= = = =
At December 31, 1998:
Total risk-based capital $336,131 13.92% > $193,150 > 8.00% > $241,438 > 10.00%
= = = =
Tier I risk-based capital $305,860 12.67% > $ 96,575 > 4.00% > $144,863 > 6.00%
= = = =
Tangible capital ........ $305,860 8.48% > $ 54,111 > 1.50% > $ 54,111 > 1.50%
= = = =
Core capital ............ $305,860 8.48% > $144,297 > 4.00% > $180,371 > 5.00%
= = = =
Savings institutions are also subject to the provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). Regulations
implementing the prompt corrective action provisions of FDICIA define specific
capital categories based on FDICIA's defined capital ratios, as discussed more
fully in the Company's Annual Report on Form 10K for the year ended December 31,
1998.
The Company's wholly owned subsidiary, RBCO, is subject to the net capital
provision of Rule 15c3-1 under the Securities Exchange Act of 1934 which
requires that RBCO's aggregate indebtedness shall not exceed 15 times net
capital as defined under such provision. Additionally, RBCO, as a market marker,
is subject to supplemental requirements of Rule 15c3-1(a)4, which provides for
the computation of net capital to be based on the number and price of issues in
which markets are made by RBCO, not to exceed $1,000,000. At June 30, 1999,
RBCO's regulatory net capital was approximately $8.1 million, which exceeded
minimum net capital rule requirements by $7.1 million.
RBCO operates under the provisions of paragraph (K)(2)(ii) of Rule 15c3-3
of the Securities and Exchange commission as a fully-disclosed broker and,
accordingly, customer accounts are carried on the books of the clearing broker.
However, RBCO safekeeps and redeems municipal bond coupons for the benefit of
its customers. Accordingly, RBCO is subject to the provisions of SEC Rule 15c3-3
relating to possession or control and customer reserve requirements and was in
compliance with such provisions at June 30, 1999.
Year 2000 Issues
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The consequences of incomplete or untimely resolution of Year 2000 issues
represent an uncertainty that could affect future financial results. The Year
2000 issue affects virtually all companies and organizations.
The Company has undertaken various initiatives intended to ensure that
computer applications will function properly with respect to dates in the Year
2000 and thereafter. The Company has established a Year 2000 action plan which
was presented to the Board of Directors on December 2, 1997. The action plan was
developed using the guidelines outlined in the Federal Financial Institutions
Examination Council's "The Effect of 2000 on Computer Systems". The six phases
of the Company's action plan are: (1) Awareness - Define the Year 2000 issues,
gain executive level support, establish a project team and develop a strategy
which encompasses technology and business issues, (2) Assessment - Assess the
size and complexity of
-31-
the issues and detail the magnitude of the effort necessary to address them, (3)
Renovation - Code enhancements, hardware and software upgrades, and system
replacements, (4) Validation - Testing of software, system components and
connections between systems, (5) Implementation - Systems should be certified as
Year 2000 ready by the business users, and (6) Contingency planning
determination of strategy to handle the most likely worst case scenarios on Year
2000 issues.
The Company has completed its action plan for mission critical systems and
processes. Certain non-critical systems and process validation and
implementation not yet finalized will be completed in the third quarter.
The majority of the Company's mission critical information technology
system structure ("IT") has been outsourced to third party vendors. The
Company's internal IT primarily consists of a minicomputer for item processing
and a personal computer based wide area network. The wide area network's primary
function is to communicate with third party service bureaus and secondarily to
run non-critical personal computer applications such as E-mail, word processing
and spreadsheet programs. The Company has various non-IT systems including but
not limited to, vault security equipment, branch security equipment, telephone
systems, circuit boards on building equipment, building elevators, and
appliances. While the above IT and non-IT systems could fail or create erroneous
results by or at the Year 2000, the Company believes that all mission critical
IT and non-IT systems are Year 2000 compliant.
The Company relies on third party vendors to perform loan, deposit, general
ledger, clearing agent functions and other application processing. The Company
has monitored the Year 2000 progress of its mission critical and non-mission
critical vendors. Most contracts with vendors signed after January 1998 have
included Year 2000 warranty language. While the Company believes that these
contractual provisions are enforceable, the Company nevertheless has established
alternatives in its contingency planning in the event Year 2000 problems arise.
For those contracts signed prior to January 1998, the Company has worked closely
with vendors to evaluate Year 2000 compliance. The Company sent out
questionnaires to all of its vendors and 62% of the total vendors responded and
100% of the mission critical vendors responded. Thirty-three vendors have been
identified as providing mission critical systems, processes or services. All but
one of the mission critical vendors are believed to be Year 2000 compliant. The
one noncompliant vendor is a governmental agency which provides software for
regulatory reports filed with such agency. While the Company expects to receive
an upgraded version of the reporting software from the governmental agency later
this year, and the reporting requirement can be satisfied by filing manual
documents if the software is not compliant. Although the Company expects all of
its vendors to be Year 2000 compliant, the Company may experience adverse
consequences if any of its vendors or the services provided by the vendors are
impacted by Year 2000 computer failures. Included in the Statement of Operations
during the three and six months ended June 30, 1999 and 1998 were $19,000 and
$67,000 and $35,000 and $36,000, respectively, of third party expenses related
to the Year 2000 action plan. The Company estimates that it will spend
approximately $100,000 on Year 2000 consulting services, $300,000 on software
and hardware maintenance specifically related to Year 2000, $100,000 on RBCO
system upgrades and consulting services and $100,000 for contingency planning
during the year ended December 31, 1999. The above items will be expensed as
incurred and do not include employee compensation allocated for time spent on
the Year 2000 project. Included in the above Year 2000 expenses are remediation
expenses. Remediation expenses through June 30, 1999 were approximately $25,000.
The Company anticipates incurring approximately $50,000 of additional
remediation expenses during 1999.
Risk factors associated with the Year 2000 include the risk that the
Company's business could be disrupted due to vendors, suppliers, and customer
system failures, or even the possible loss of electrical power or phone service.
The Company has assessed the probability of these events and has formulated a
contingency plan. The Company could also be subjected to Year 2000 litigation
from customers, borrowers and suppliers as a result of both internal and third
party system failures. Further, the credit quality of the Company's loans may be
affected by the failure of a borrower's operating or other systems as a
consequence of a Year 2000 issue or the related failure of a borrower's key
suppliers, customers, or service providers resulting in higher provisions for
loan losses.
The Company's underwriting and credit policies have been revised to now
include consideration of a borrower's potential Year 2000 issues. The Company
has determined that consumer and residential loans involve little or no Year
2000 risk, while small business loans and commercial loans have potential Year
2000 risk. Small business and commercial lending departments have established
specific Year 2000 credit policies, which are summarized below.
-32-
Small Business Loans - The individual dollar amount of these loans in this
category is low. Most loans are for less than $100,000. The Company has sent out
Year 2000 questionnaires to all small business borrowers and received a 60%
response rate. Based on our review of the responses, the Company attempted to
assess the Year 2000 risk of each borrower.
Commercial Loans - The majority of our commercial loans are collateralized
by real estate, some of which involve land only, which mitigates the Bank's risk
for this category of loan. The Company has sent out Year 2000 questionnaires to
all commercial loan borrowers and received a 54% response rate. The Commercial
Loan officers have had one-on-one meetings with each Borrower to discuss Year
2000 issues. Based on the responses and the meetings, the officer's categorized
each loan as High, Medium or Low Year 2000 risk. High risk loans are being
monitored to determine the Borrower's progress towards Year 2000 compliance.
Once achieved, the loan is moved to a lower risk category. There have been no
loans made in 1999 that are considered High Risk. Should BankAtlantic decide to
extend a credit to a High Risk Borrower, policies are in place to mitigate the
risk, such as protracted terms or charging a premium on the loan's interest
rate.
There is no assurance that the Company's borrowers will be able to meet
their obligations to the Company if these borrowers experience Year 2000
problems.
Certain assets of the Company may have to be replaced, based on upgrades to
equipment and software that are part of the Company's normal business needs,
rapidly developing technology, and a three year capital equipment and software
replacement plan. The Company does not anticipate impairment or significant
replacement of assets related to the Year 2000 issue.
There is no assurance that the foregoing has identified all costs, risks or
possible losses which the Company may experience associated with Year 2000
issues. The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, borrowers and
customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The goal of the Year
2000 Project is to significantly reduce the Company's level of uncertainty about
the Year 2000 issues and, the Company believes that, with the implementation of
new business systems and completion of the project as scheduled, the possibility
of significant interruptions of normal operations should be reduced.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-33-
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On June 1, 1999, the Company issued 35,625 shares of restricted Class A
common stock to the former principals of Cumberland Advisors. This issuance of
these shares represented contingent payments made under the February 1998
acquisition agreement under which RBCO acquired Cumberland Advisors.
On June 28, 1999, the Company issued 137,344 shares of restricted Class A
common stock in connection with RBCO's acquisition of the assets of Southeast
Research Partners, Inc. These shares were issued to certain officers of
Southeast Research Partners in exchange for shares of preferred stock of a
related entity held by such officers.
The above issuances of restricted Class A common stock were issued without
registration under the Securities Act under an exemption pursuant to Regulation
D.
Item 4. Submission of Matters to a Vote of Security Holders
The registrant held an Annual Meeting of Shareholders on July 21, 1999. At
the meeting five Directors were elected by a vote of 9,790,516 for and 110,919
against. The following proposals were adopted by the following votes:
Broker
For Against Abstained Non-votes
--------- --------- --------- ---------
Approval of the BankAtlantic
Bancorp-Ryan, Beck Restricted
Stock Incentive Plan ........ 7,856,818 230,327 16,409 1,797,881
Approval of the BankAtlantic
Bancorp 1999 Stock Option
Plan ........................ 6,794,790 1,293,421 17,135 1
Approval of the BankAtlantic
Bancorp-Ryan, Beck Executive
Incentive Plan .............. 9,650,222 234,077 15,343 1,797,881
Exhibits and Reports on Form 8K
Exhibit 10.11 BankAtlantic Bancorp 1999 Stock Option Plan
Exhibit 11 Statement re: Computation of Per Share Earnings.
-34-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANKATLANTIC BANCORP, INC.
August 12, 1999 By: /s/Alan B. Levan
- --------------- -------------------------------
Date Alan B. Levan
Chief Executive Officer/
Chairman/President
August 12, 1999 By: /s/Frank V. Grieco
- --------------- -------------------------------
Date Frank V. Grieco
Senior Executive Vice President,
Principal Financial and
Accounting Officer